Can Amazon deliver on its grand distribution plans?

E-commerce giant Amazon is constantly looking at new markets to enter and new ways in which to provide its deliveries faster. But, asks Erika Morphy, will its focus on the food market or its use of drones bring the company global success?

There is a factory on Israel’s Gaza Strip that is about 200 years old. It has been pressed into service by BrodtZenatti Holdings, a company run by Ilana Brodt and Avi Zenatti to make Karawan tahini, a sesame butter whose seeds are sourced from Ethiopia and turned into the delicacy using methods that are far older than the production facility itself.

“We only use pure sesame seeds with no preservatives,” says Ms Brodt. “The seeds are crushed by stones, not machines, so we don’t have to add anything to it.”

BrodtZenatti has multiple distribution partnerships that place Karawan tahini throughout the Middle East and in select cities around the world, including New York and London.

The company also sells Karawan Tahini through e-commrence giant Amazon, which has made it possible for BrodtZenatti to export its product wherever Amazon can ship it. “Amazon has been an amazing vehicle for us as well as other products like ours,” says Ms Brodt. “Our brand’s reach has grown considerably because of it.”

Where next?

Ms Brodt is well aware that Amazon is entering the grocery sector of different countries, a fact made quite clear by its $13.7bn proposed acquisition of the Whole Foods chain in the US. It is not just that deal, however, that has signalled Amazon’s intent to conquer the world’s food industry. It has also started grocery initiatives in several countries, including Spain, Italy, the UK and most recently India.

But Ms Brodt is not waiting for Amazon to finish what she and her husband Mr Zenatti started with the production and sale of Karawan tahini, a story that began when they realised they could not find the product anywhere outside Israel and decided to make and export it themselves. “As much as we love Amazon we know that most of our exports are made through our distributors,” she says. “I don’t see that changing no matter how many advances Amazon makes in the grocery industry.”

Ms Brodt is wise to maintain her distributorships – indeed at the moment she is looking to expand into the state of California – because while it is clear that Amazon is building a foothold for itself in the world’s grocery markets, its method is less clear.

Incremental approach

One school of thought is that Amazon, with its highly innovative and data-driven distribution methods (it is experimenting with drones, and has developed its own fleet of aircraft and trucks) will push into the global grocery sector using these methods and eventually upend traditional models of food sourcing and distribution.

Another is that Amazon has learned the lesson of Wal-Mart, which also tried to barge its way into foreign markets using its homegrown innovations, and failed. Amazon, the thinking goes, will instead sit back and watch what works in each market and gradually make improvements.

“Amazon is positioning itself to see whether it can go forward with last-mile delivery in those markets,” says Adam Hartung, managing director of US strategy consultant Spark Partners. The data it collects will be key to its decision, he adds. “That is why it invested in airplanes and trucks in the US. It had volumes of data to show that it would be cheaper if it owned its transportation in order to optimise its shipping.”

This cautiousness means Amazon’s international success will not be as great as it has been in the US, where the business environment is based on efficiency gains, according to Peter Cohan, a lecturer in strategy at Babson College in the US and author of 12 books including Disciplined Growth Strategies.

“In other countries, smaller companies have significant political power and can resist efforts to make things more efficient,” he says.

Demand outstrips caution

But it may be that Amazon does not get to decide at what pace it will approach the market. Consumer demand is rapidly reshaping the food market and along with it, the related distribution strategies and technologies. In short, Amazon may find it has to go big and bold if it wants to make a mark outside the US.

“Consumers are asking for tailor-made products, products that are personalised to their tastes and health,” says Angel Versetti, co-founder of Ambrosus, a Swiss-based community-driven system that assures the quality and origins of food from farm to fork.

The result is that companies need to focus on the early-stage producer level too, not just the last mile. “We are moving to a more multi-disciplinary approach,” says Mr Versetti.

This is why it could be a mistake to discount Amazon’s more fanciful innovations entirely, particularly its experiments with drone technology.

“Amazon’s use of drones has a lot of potential,” says Alexandra Isenegger, CEO of the online legal platform Linkilaw. “Many start-ups, for example Zipline, have used drones to deliver products over long distances successfully. Although Amazon's Prime Air is present in the US, the use of drones over long distances has many implications due to aviation laws in different jurisdictions.”

Proof of concept

Ms Isenegger notes that Prime Air made its UK trial of deliveries back in December 2016, but there is no real indication that the service will be up and running in the UK any time soon.

But she also points back to Zipline, a start-up delivering medical supplies to Uganda, where the government has collaborated with the company to ensure that the project can go ahead. This is not to say governments would give the same consideration to a commercial project; indeed the rollout of commercial drone use will undoubtedly take a long time because of complicated laws and increased fears of terrorism, according to Ms Isenegger. But Zipline’s project in Uganda proves it is possible.

Ms Isenegger concludes that drone use by Amazon could revolutionise food delivery, and even eliminate the need for supermarkets and fruit and vegetable stalls, because deliveries could take place directly from the source of food to the consumer. “That being said, great ideas aren’t always popular,” she adds.

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